1. Top story: Yellen says the economy isn't quite there yet

Yellen: Labor market healing but economy still needs Fed support. "Yellen acknowledged that broader measures of labor market health have registered 'notable improvements.' She has frequently argued that the traditional measure of unemployment does not capture the true strain in the job market. Many workers may be in part-time jobs when they would rather have full-time positions, or they may have given up looking for work because they are discouraged by their prospects....Though the numbers are moving in the right direction, Yellen said Tuesday they remain too high. Some economists believe that is why wage growth has remained weak despite stronger hiring." Ylan Q. Mui in The Washington Post.

What that means: We're keeping rates down for a while. "'There are mixed signals concerning the economy,' Yellen said in response to questions during testimony to the Senate Banking Committee today. 'We need to be careful to make sure that the economy is on a solid trajectory before we consider raising interest rates.'...Yellen repeated that interest rates are likely to stay low for a 'considerable period' after the Fed ends its asset-purchase program, which she said could happen following the October meeting." Jeff Kearns and Matthew Boesler in Bloomberg.

The hidden inflation risk in ending the bond-buying program. "We’ve had low, stable inflation for decades, a feat that is arguably the greatest triumph of modern central banking. But it seems arrogant to assume we’ve kicked inflation risk for good....It seems possible that it’s been so long since we experienced inflation risk that we may not recognize it....The best-case scenario could be small, predictable inflation — as long as the Fed is committed to it. That’s an open question. Paul Volcker was willing to take the economy into recession to fight inflation. That caused a lot of pain; it also bought the Fed credibility. It’s hard to imagine Janet Yellen going that far. Even if this program of quantitative easing never results in high inflation, if it cost the Fed its credibility, inflation risk could be a bigger problem than market prices suggest." Allison Schrager in Bloomberg Businessweek.

Will the long-term and shadow unemployed ever come back? "There are the part-time unemployed, who have jobs but can't find the full-time ones they want. Then there are the long-term unemployed, who have been looking for work for six months or longer and have trouble getting companies to even read their resumés anymore. And finally, there are the shadow unemployed, who have given up looking but would take a job if they could find one. This all adds up to a much weaker economy than the headline 6.1 percent unemployment rate suggests. And it's why wage growth has stayed so weak even though things have started to pick up a bit. The hope, of course, is that a stronger recovery will suck in more of these marginalized workers. But how realistic is that? Well, it's not clear." Matt O'Brien in The Washington Post.

Explainer: The 10 most endangered jobs, or why you're reading this online. Kathleen Madigan in The Wall Street Journal.

Yellen mildly concerned on asset bubbles. "She sees some risks out there, though it’s clear she is not ready to sound an overall alarm bell over asset prices....The published monetary policy report...says: 'Valuation metrics in some sectors do appear substantially stretched — particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year.' This is the first formal hint that Fed officials see the boom in prices for unproven businesses in the tech industry to be another potential bubble." Neil Irwin in The New York Times.

Social media and biotech stocks fell after Yellen's warning. "Biotechnology and social media stocks slumped as the Federal Reserve said valuations in smaller companies in the industries are 'substantially stretched.' The Nasdaq Biotechnology Index retreated 2.3 percent, the most in a week, and the Global X Social Media Index ETF lost 1.1 percent as of 4 p.m. in New York. Facebook Inc. and Pandora Media Inc. slid more than 1 percent. The Russell 2000 Index of small-cap shares fell 1 percent....'Valuation metrics in some sectors do appear substantially stretched, particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year,' the Fed said in a policy report today." Callie Bost in Bloomberg.

She remains wary of the housing market. "Her comment Tuesday reinforced a warning she offered when testifying before lawmakers more than two months ago....while the rise in rates is 'the most obvious explanation for the weakness in the housing market over the past year,' it 'seems unlikely that interest rates are the whole story,' according to the Fed’s semiannual Monetary Policy Report....In any case, the Fed report concluded, the current level of new-home construction 'likely remains much too low to be sustainable' and should rise again at some future point. And it singled out construction of multi-family buildings as 'the only bright spot of late.'" Ben Leubsdorf in The Wall Street Journal.

Yellen shoots down Republicans' planned Fed overhaul legislation. "Federal Reserve Chairwoman Janet Yellen Tuesday voiced her opposition to two new Republican proposals for legislation that would change the central bank’s operations. Ms. Yellen said she would welcome having a community banker on the central bank’s board, but added she does not believe new legislation is needed to ensure one is included....Ms. Yellen was also very critical of a separate proposal that would force the Fed to adopt mechanical monetary policy rules and explain any deviations from them to Congress....She added that the economic slump of 2007-2009 could have been much worse if the Fed had followed official policy rulebooks." Pedro Nicolaci da Costa and Ben Leubsdorf in The Wall Street Journal.

Retail sales, manufacturing data point at firming economy. "Core sales, which strip out automobiles, gasoline, building materials and food services, increased 0.6 percent last month after rising an upwardly revised 0.2 percent in May, the Commerce Department said. Core sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported as being flat in May....In another report, the New York Fed said its Empire State general business conditions index jumped to 25.60 this month, the highest since April 2010, from 19.28 in June. New orders edged up, while factory employment and shipments surged....Overall retail sales in June were restrained by a 0.3 percent fall in receipts at auto dealerships." Lucia Mutikani in Reuters.

The CBO's 'what if' exercise on the future federal debt. "Without any change in tax and spending policies, the CBO projects that the federal debt, measured as a percentage of gross domestic product, would reach 111% in 2039. Historically, that’s very high. Tweaking the economic, demographic or health-care spending assumptions easily produces an even worse scenario of debt in 2039, at 160% of GDP, or a milder scenario: 75% of GDP, roughly where it is today. The CBO projects, for instance, that the yield on 10-year Treasury bonds will average 4.9% over the next 25 years (or 2.5% adjusted for inflation). What if rates are 0.75 percentage points higher? Federal debt would be around 135% of GDP in 2039 vs. CBO’s 111% headline projection. If rates are 0.75 points lower, the debt would be 92% of GDP." David Wessel in The Wall Street Journal.

The CBO lowered its federal health-spending estimate, thanks in part to Obamacare. "While no one knows quite why that's happening, the Congressional Budget Office is predicting substantial savings. For the 10-year period beginning in 2010, the estimated cost of Medicare and Medicaid — the government health programs for the elderly and the poor — has dropped by $1.23 trillion, according to revised CBO projections....CBO predicts that the savings will grow by 2039 to 1.5 percent of the economy — or, in today's dollars, roughly $250 billion a year. That's real money by any measure. But it's not enough to brighten the CBO's otherwise gloomy forecast for the next 25 years....In the short term, the Affordable Care Act is a major factor in rising costs, the CBO said." Lori Montgomery in The Washington Post.

TAYLOR: How to spark another great moderation with rules-based monetary reform. "When monetary policy became more rules-based during the 1980s, 1990s and until recently, the economy improved and we got what economists call the Great Moderation of strong economic growth with declining unemployment and inflation during those same years. When policy became more ad hoc, interventionist and discretionary during the past decade, the economy deteriorated and we got a financial crisis, a Great Recession, and a not-so-great recovery. So as Americans begin to diagnose the poor economic performance of recent years and look for remedies that rely more on markets, they are again looking to monetary reform." John B. Taylor in The Wall Street Journal.

THOMA: Can long-term jobless benefits raise joblessness? "Economists have found two ways that extending unemployment benefits...could have caused unemployment to go up. First, that compensation can discourage workers from taking jobs. The worry, frequently heard on the political right, is that workers would rather stay home and enjoy leisure supported by government benefits....The second way...is by causing workers who would otherwise stop looking for work and immediately drop out of the labor force to instead stay in the labor force as job-hunters until their benefits run out. However, economic research also says even if unemployment compensation does cause workers to remain jobless longer, that's not necessarily a bad thing." Mark Thoma in CBS News.

Top opinion

KLEIN: Conservatives won on Obamacare. They just don't know it. "So much has been invested in Obamacare's failure that its success would be ideologically catastrophic for its critics. Which is pretty strange, actually. Because Obamacare's success is going to end up validating some pretty important conservative ideas — and, potentially, forestalling some liberal ones. The liberal dream wasn't a health-care system where success can be partly measured by the enthusiasm of private insurers. The liberal vision was single payer, or some kind of France-like multi-payer system. The first version of a national health-care proposal with the basic shape of Obamacare was when Senate Republicans presented it as an alternative to Bill Clinton's health-care plan." Ezra Klein in Vox.

FRUM: An immigration crisis we brought on ourselves. "Terrible violence had spread across Central America. Desperate to escape, thousands sought refuge in the United States. Many arrived illegally. For a long time, they lived in the shadows. But then a bold president coaxed and cajoled Congress into passing a major immigration reform. The Central American migrants at last gained the right to live in the United States legally. It’s a decades-old story that contains the origin of the present-day border crisis, which has brought thousands of unaccompanied Central American children to the United States in the hopes of gaining residency." David Frum in The Atlantic.

JENKINS: Who's the real cigarette monopolist? "At long last the government would be able to resolve its split personality: It disapproves of smoking and yet every gesture somehow seems to end with government taking a bigger share of the profits of smoking. By embracing e-cigarettes and finally admitting that nicotine is a pretty good drug, the government could at least profit with a clearer conscience." Holman W. Jenkins Jr. in The Wall Street Journal.

GARVER: It's not your imagination — government really is getting worse. "Light, a senior fellow at the Brookings Institution in Washington...released a study of major government failures on Monday...and found that failures are increasingly frequent. Using data drawn from news archives, Light identified government failures dating back to 1986 and found that major problems occurred at a rate 1.6 per year until 2001 — nearly doubling in the years afterward, to 3.0. It appears to be getting even worse. President Obama may have had fewer major failures than his immediate predecessors have, but as Light points out, his second term isn’t over yet." Rob Garver in The Fiscal Times.

McDOWELL: Why the government shouldn't control the Internet. "While some tech companies have been inspired by Wu as they try to 'regulate their rivals,' phone and cable companies, they may be forging their own regulatory chains, link by link. During my seven years as a FCC commissioner, I lived through several iterations of the net neutrality debate. Its proponents have broadened the term’s definition each time to serve their own growing purposes, both here and abroad. Wu’s vision...shows how their ostensible goal could continue to morph into a regulatory regime for the entire Internet ecosystem, affecting far more than ISPs....Wu’s supporters should be careful what they wish for." Robert M. McDowell in The Washington Post.

GALSTON: The hard numbers on Social Security. "These eye-popping numbers show what will have to be done if we don't change scheduled benefits, now or in the future. Yet no change is exactly what the American people want. In a study released last month, the Pew Research Center asked 10,000 adults to choose between two statements: Social Security benefits should not be reduced in any way, or some future reductions need to be considered. Sixty-seven percent endorsed the first, 31% the second.." William A. Galston in The Wall Street Journal.

2. The very temporary highway-funding solution

Yep, Congress is definitely punting. "The bill would provide $10.8 billion more for the federal Highway Trust Fund. That amount is projected to be enough to keep the fund solvent through May. Backers included 181 Republicans and 186 Democrats, while 45 Republicans and 10 Democrats opposed it. The bill is likely to become law only because the Senate and the White House are out of other options. No one is particularly happy about it. It doesn't solve any long-term problems, and in less than a year it will put lawmakers right back where they have been.For now, however, the legislation would avoid the steady reduction of federal funds that Transportation Secretary Anthony Foxx has warned will begin on Aug. 1." Joan Lowy in the Associated Press.

For a refresher on the whole Highway Trust Fund issue... Read this. Brad Plumer in Vox.

The GOP establishment prevails. "The Tea Party-aligned groups that pushed the strategy that led to last fall's government shutdown are back, this time urging a 'no' vote on the short-term extension to the federal highway funding program. FreedomWorks, Heritage Action and the Club for Growth have all announced they intend to use the vote when grading lawmakers. Call it the latest round in the Republican's Party's battle between its establishment and Tea Party wings. And as has often been the case in recent months, on Tuesday afternoon, the establishment prevailed." S.V. Dáte in NPR.

Explainer: How Congress just pulled a fast one with its finesse of wording. Scott Horsley in NPR.

Obama still wants a long-term solution in the form of his $302B, 4-year plan. Boehner defers to the Senate. "Obama said better roads and bridges will help boost the economy by keeping construction workers on the job and by ultimately saving time and money for businesses and commuters. Obama pushed his own $302 billion, four-year transportation spending plan, one partly paid for by closing corporate tax loopholes. House Speaker John Boehner, R-Ohio, said Obama should push the Democratic-controlled Senate to act on his plan so the House can then review it." Nedra Pickler in the Associated Press.

By the way, what would it take for cities to totally eliminate the need to own a car? "In another world, people are talking about the much more fundamental and interesting questions of how to design smarter transportation for a 21st century when most everyone will have smartphones and fewer of us will own our own cars....This proposal comes from Helsinki....Route-planning apps already exist that draw options from multiple transportation modes....What elevates the idea here is the crucial unified payment method, and the central system that would coordinate between public transit and private companies like Uber." Emily Badger in The Washington Post.

The president wants cars that talk to each other. Yep, you read that right. "During his visit at the research center, Obama touted work on so-called vehicle-to-vehicle and vehicle-to-infrastructure communication technology to improve navigation. The technology allows cars, trucks and other vehicles to send real-time information wirelessly, an innovation researchers hope can help reduce accidents and boost fuel efficiency by alleviating traffic. U.S. regulators are already crafting a proposed rule that would require all new vehicles to use the new technology, which could be put in place by early 2017, before Obama leaves office." Jeff Mason and David Lawder in Reuters.

Other transportation reads:

Senate Dems to hit GM with ignition-switch legislation. Tim Devaney in The Hill.

VINIK: Congress at its worst. "Congress’s failure to pass a sensible bill in the aftermath of the financial crisis will likely go down as one of the great policymaking failures. Interest rates at that time were at historic lows, construction workers were out of work, and our infrastructure needed significant maintenance. If there ever was a time for a deficit-financed infrastructure package, it was then. But it's not too late....To be fair, Obama has been trying; he has made almost annual proposals to undertake such investment in infrastructure (albeit, not deficit-financed), but Republicans defeated them every time. That’s not what the current debate around the Highway Trust Fund is about, though." Danny Vinik in The New Republic.

3. The public is really upset about the FCC's net-neutrality proposal

They're deluging the FCC with enough comments to challenge the Janet Jackson debacle. "Despite the flood of comments, the open Internet debate has a way to go before it matches the public reaction the agency absorbed after a televised glimpse of Janet Jackson’s nipple during the Super Bowl halftime show in 2004, a 'wardrobe malfunction' seen around the world. That incident elicited 1.4 million messages from the public, but the F.C.C. classifies those as complaints rather than comments. A sampling of the many thousands of individual comments posted on the commission’s website is heavily weighted toward urging the F.C.C. to take strong action to preserve net neutrality and criticizing Mr. Wheeler’s proposal as not doing that." Steve Lohr in The New York Times.

Oops: FCC has to extend comment period after commenting system goes down from the deluge. "The Federal Communications Commission is being slammed by public comments on net neutrality right now. The problem is so severe that some visitors haven't been able to file their input — so the FCC is extending the deadline for comments until midnight on Friday. The FCC's electronic comment filing system (ECFS) is 17 years old, but despite that, it's managed to handle a crush of traffic in recent weeks." Brian Fung in The Washington Post.

'Blame the bean counters!' "The Federal Communications Commission is blaming a lack of funding from Congress after its website crashed on Tuesday....An agency spokesman said Congress has failed to give the agency enough money to upgrade its information-technology systems. The official said additional funding could help prevent similar backlogs and ensure that the public is able to share its views with the agency....Republicans seem more inclined, however, to move the agency's budget in the opposite direction." Brendan Sasso in National Journal.

Why do Silicon Valley giants want Washington regulate wireless Internet? "The net neutrality rules that have been the center of heated debate for much of this year focus only on the wired kind — and now Silicon Valley’s biggest companies would like to change that. The Internet Association, a trade group whose members include Google (GOOG), Facebook (FB), and Twitter (TWTR), filed a letter on Monday...arguing that the distinction between wireless and wired Internet has passed its usefulness....Wireless Internet wasn’t included in the FCC’s 2010 Open Internet rules....The idea was that wireless Internet providers could experiment more freely, and that has started to happen." Joshua Brustein in Bloomberg Businessweek.

Web users, rejoice: The House just voted to bar the government from taxing broadband Internet. However... "It’s a big win for Internet users, but it also puts a damper on prospects for creating a path forward for new ways to tax sales made online. A permanent ban on taxation, which still needs to pass the Senate, means states won’t have the option of capitalizing on the rapid spread of Internet use to help pad the bottom line. It also means even dimmer prospects for lawmakers hoping the widely supported Internet Tax Fairness bill could help carry a more controversial piece of legislation to allow states to tax out-of-state online sales transactions." Kelsey Snell in Politico.

How many patent suits are filed by trolls? Two-thirds. "By filing one frivolous lawsuit after another, trolls extract enormous payments from companies simply by claiming infringement — they don't have to do very much to back up their assertions, nor do they have to be using the patents to sue. A new study from PricewaterhouseCoopers shows that the problem is getting worse: While monetary awards from patent lawsuits are decreasing overall, patent trolls — also known as non-practicing entities because they simply stockpile patents without making anything with them — are making way more off of litigation than their practicing counterparts. Even as the median award has shrunk over time, awards to trolls are only growing." Brian Fung in The Washington Post.

Other tech reads:

Senate passes bill to allow unlocking of cellphones. Ramsey Cox in The Hill.

4. What you need to know on the tobacco-company merger proposal

A duopoly that may survive antitrust reviews? "The merger of Lorillard (LO) and Reynolds American (RAI) would create just such a two-member cartel....Approval of the $25 billion merger would also create a behemoth in a collapsing industry still seen as Public Health Enemy No. 1....The U.S. has made enormous strides in marginalizing smoking and decreasing sales in the $90 billion market....the tobacco industry’s financial health could potentially be a factor in reviews made by the Federal Trade Commission and the Justice Department. For one thing, the industry pays an estimated $30 billion each year in local, state, and federal taxes....About half the tax take flows to the U.S. government." Justin Bachman in Bloomberg Businessweek.

E-cigs are all the rage, and flavors generating outrage. "News on Tuesday that Reynolds American had agreed to buy Lorillard...highlighted how important e-cigarettes have become to the declining tobacco industry. Both Reynolds and Lorillard have pushed hard into e-cigarettes, which offer a new way of delivering a puff of nicotine. For now, those companies’ flavors are relatively modest, though they may feel pressure to expand into the explosion of competition for the consumer palate....Federal health authorities have outlawed most cigarette flavorings except menthol, arguing that they lure the young....While the Food and Drug Administration has proposed regulations for e-cigarettes, it has not limited marketing or flavors, which the agency is studying." Matt Richtel in The New York Times.

A second report finds more safety lapses at the CDC. "A second U.S. investigation into last month’s mishandling of anthrax bacteria at federal government laboratories in Atlanta has found additional safety lapses, such as anthrax stored in unlocked refrigerators in unrestricted hallways, according to a document released Monday by a House committee. The findings by investigators from a special unit of the Agriculture Department raise additional concerns about the scope of the incident and the culture of laboratory safety at the Centers for Disease Control and Prevention....They also add troubling new context to last month’s anthrax scare." Lena H. Sun and Brady Dennis in The Washington Post.

5. Congress starts to scramble on border-crisis legislation

Quick status update on legislation. "House Republicans are working to unveil by Friday their counteroffer to President Obama's initial $3.7 billion emergency spending request to stop undocumented, unaccompanied minors from crossing the southwestern border....[Separately], Republicans, and some Democrats, are coalescing around a bipartisan proposal to make it easier to return home unaccompanied minors who have crossed the U.S border, though there is strong Democratic opposition to the idea. A proposal unveiled Tuesday by Senate Minority Whip John Cornyn, R-Texas, and Rep. Henry Cuellar, D-Texas, would amend a 2008 law to streamline how the U.S. processes minors, expediting court proceedings." Susan Davis in USA Today.

Explainer: What other solutions are out there? Immigrant analysts sound off. Esmé E. Deprez in Bloomberg.

House GOP may halve Obama's $3.7B funding request. "No final decisions have been made, but the GOP legislation is also likely to include several policy changes, including revising a 2008 immigration law....The Obama administration has expressed openness to such a provision, though it worries many congressional Democrats. House Republicans are also discussing language that would make it easier for Border Patrol agents to pursue illegal migrants at the border. The Obama administration designated roughly 500,000 acres of land near the border as a national monument, which the GOP says hampers law enforcement." Jake Sherman and Seung Min Kim in Politico.

The U.N. secretly thinks revising this 2008 law may just expand a failing system. "A secret UN report obtained by Vox paints a very disturbing picture: the current process is totally failing to protect Mexican children from harm. Children who have reason to fear for their lives, or who are victims of human trafficking, are almost certainly being sent back into danger. And now Congress wants to use the process that's already failing to identify which Mexican children are being victimized, and expand it to Central American children fleeing the most dangerous places on earth." Dara Lind in Vox.

The Cornyn-Cuellar bill's biggest roadblock: Majority Leader Reid. "The Democratic Senate majority leader told reporters that he will oppose a proposal from Cornyn (R-Texas) and Cuellar (D-Texas)....Reid (D-Nev.) seemed unwilling to lay out a precise blueprint for how the chamber will move forward on the border crisis until senators speak to Homeland Security Secretary Jeh Johnson and other top administration officials. But Reid clearly believes that President Barack Obama’s supplemental request of $3.7 billion for border funding is superior to Cuellar and Cornyn’s border plan — and he said the White House has sufficient authority to make policy changes to adjust the flow of migrants through the border through the executive office." Burgess Everett in Politico.

Comments our editors find particularly useful or relevant are displayed in Top Comments, as are comments by users with these badges: . Replies to those posts appear here, as well as posts by staff writers.

To pause and restart automatic updates, click "Live" or "Paused". If paused, you'll be notified of the number of additional comments that have come in.

Comments our editors find particularly useful or relevant are displayed in Top Comments, as are comments by users with these badges: . Replies to those posts appear here, as well as posts by staff writers.